FINANCIAL ADVISORY SERVICES AGREEMENT
May 14, 1999
Xx. Xxxxxx X. Xxxxxxxxxx
Chief Executive Officer
xxxxxx-xxxxxxxxxxxx.xxx, inc.
0000 Xxxxxx Xxxx
Xxxxxxxxx, XX 00000
Dear Xxx:
This letter confirms the terms of the agreement between
xxxxxx-xxxxxxxxxxxx.xxx, inc. (the "Company") and Lilly Beter Capital Group,
Ltd. ("LBCG") regarding certain financial advisory services to be provided to
the Company by LBCG in connection with a proposed initial public offering of
the Company's common stock (the "IPO"), and a subsequent debt financing (the
"Debt Funding"). Collectively, the IPO and the Debt Funding are referred to
below as the "Offerings."
A. THE INITIAL PUBLIC OFFERING
1. LBCG will provide services to assist the Company in raising between
Five Million ($5,000,000) and Nine Million ($9,000,000) Dollars (U.S.) in the
IPO. It is our understanding that the Company intends to sell to the public
approximately 16% to 23% of the Company's common stock in the IPO. The IPO will
be a best efforts commitment from an underwriter. This Agreement is subject to
LBCG's reasonable satisfaction with its due diligence investigation throughout
the entire period before the effective date of the IPO. LBCG will provide
financial advisory services to the Company throughout the entire process of the
IPO and if necessary, recommend to the Company underwriters, accountants and
attorneys. LBCG will also coordinate the preparation of the registration
statement (including writing, printing, interfacing with all parties to agree on
language, etc.), due diligence, the registration of the offering and necessary
blue sky filings.
2. LBCG agrees to pay, when incurred, all reasonable costs and expenses
of the IPO and the Debt Funding (the "Offering Costs"), UP TO A MAXIMUM PAYMENT
OF $675,000. Such Offering Costs will include, without limitation, premiums for
errors and omissions insurance, legal and accounting fees, filing fees for the
registration of the offering with the SEC, the NASD and state regulatory bodies,
printing, due diligence expenses, road show expenses, advances to the
underwriter against expenses, and any other miscellaneous expenses of the
Company related to the IPO and the Debt Funding. Under no circumstances will
LBCG be obligated to pay more than $675,000 for the Company's Offering Costs
relating to the IPO and the Debt Funding.
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3. LBCG will receive no proceeds of the IPO and no commissions or other
compensation in connection with the IPO. Except as provided in section 4 below,
the Company will have no obligation to reimburse LBCG for Offering Costs paid by
LBCG, UNLESS AND UNTIL the Debt Funding is completed, in which case the Company
will repay LBCG from the proceeds of the Debt Funding for Offering Costs
advanced by LBCG, along with interest on such advances at 10% per annum.
4. LBCG will pay Offering Costs as promptly as practicable after
notification from the Company or the purveyor of services that such Offering
Costs have been, or are required to be, expended in connection with the
Offerings. The Company agrees, where possible, to provide LBCG at least five
business days notice that funds are required to be paid by LBCG for Offering
Costs. Upon closing of the Offerings, the Company and its service providers
will submit to LBCG receipts for all Offering Costs advanced by LBCG. All
advances by LBCG for Offering Costs are non-refundable. Should the Company
default under this Agreement, LBCG agrees to pay all unpaid Offering Costs;
provided, however, that the Company will be obligated to reimburse LBCG, on
demand, for any Offering Costs advanced by LBCG.
5. The Company acknowledges that no work on the IPO will commence until
the premium for errors and omissions insurance has been paid. The Company also
agrees to pay an initial retainer for legal counsel, not to exceed $50,000.
Both the premium for errors and omissions insurance and the initial retainer for
the Company's legal counsel shall be advanced by LBCG as Offering Costs and are
included in the $675,000 aggregate amount of Offering Costs that LBCG has agreed
to advance.
6. In the IPO, it is anticipated that the underwriter will charge a 10%
commission and a non-accountable expense allowance of up to one percent of the
offering proceeds. Such compensation generally would be paid to the underwriter
from the proceeds of the IPO at closing, and would be all-inclusive and cover
any commissions due the underwriters or other brokers involved in the IPO. No
commissions or compensation will be paid to LBCG from the proceeds of the IPO.
7. The Company acknowledges that the effective date of the IPO may be
subject to market conditions and that the effective date of the registration
statement will be subject to the SEC, NASD and state regulatory bodies with
which the registration statement is filed.
B. THE DEBT FUNDING
1. LBCG will provide services to assist the Company in raising Thirty
Five Million ($35,000,000) Dollars (U.S.) in the Debt Funding. The Debt Funding
will be a firm commitment from LBCG or an underwriter for the purchase from the
Company of a tradable debt instrument. This firm commitment is subject to
LBCG's reasonable satisfaction with its due diligence investigation throughout
the entire period before the effective date of the Debt Funding. LBCG will
provide financial advisory services to the Company throughout the entire process
of the Debt Funding and if necessary, recommend to the Company underwriters,
accountants and attorneys.
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LBCG will also coordinate the preparation of the offering circular or
registration statement (including writing, printing, interfacing with all
parties to agree on language, etc.), due diligence, the registration of the
offering and necessary blue sky filings. The Debt Funding is contingent on
the Company being a reporting company under the Securities Exchange Act of
1934.
2. In the Debt Funding, it is anticipated that commissions will be
between 7 1/2% and 10%. Such compensation generally would be paid from the
proceeds of the Debt Funding at closing, and would be all-inclusive and cover
any commissions due the underwriters, other brokers involved in the Debt Funding
and, if applicable, LBCG.
3. In today's market, the Debt Funding may carry an 11% to 12 1/2%
interest rate. LBCG cannot provide assurance as to the interest rate which may
be necessary for the successful completion of Debt Funding due to fluctuations
in the marketplace. LBCG would anticipate that the rating issued by a rating
service would be in the C range, possibly C3---. Ratings range from AAA+++ to
D3---. Any rating below B- is considered to be a high-risk category.
4. In consideration of the services to be provided by LBCG hereunder, the
Company agrees that, during the term of this Agreement, LBCG may designate one
person to serve on the Board of Directors of the Company.
5. LBCG contemplates most of the Debt Funding being structured in a bond
type structure. However, it may be possible to utilize Euro Dollar funding at
rates up to 1% lower than those available in a conventional bond offering.
Although there is no guarantee on the amount, if any, that may be raised using
the Euro Dollar method, LBCG will do everything in its power to place as much
debt in this type of security as possible. This security also may hold another
advantage: up to a one- (1) year moratorium of payment of interest on the debt.
C. MISCELLANEOUS
1. LBCG will provide advice to the Company in connection with the
preparation of pro forma financial information for the different scenarios that
the Company may pursue. The Company will be required to confirm that all pro
formas are true and correct to the best of the Company's knowledge. LBCG may
require the Company's accountants to deliver an opinion concerning the
compilation of such pro formas.
2. LBCG feels the time frame necessary to complete all aspects of the
Offerings except the IPO is up to fifteen (15) months.
3. LBCG requires a right of first refusal on arranging for all raising of
future capital in excess of Five Million ($5,000,000) Dollars (U.S.). LBCG will
be required to respond to the Company within 30 days or LBCG will forfeit its
right of first refusal. If the Company raises any capital over Five Million
($5,000,000) Dollars without giving LBCG a right of first refusal to participate
in such financing, LBCG will receive a payment equal to 1% of any funds raised;
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provided, however, that if LBCG's funding sources are used, LBCG will receive a
payment equal to 2% of any funds raised. This right of first refusal is valid
for a period of five years from the date of this Agreement.
4. The Company agrees to timely deliver all documents required to
complete the process of the Offerings.
5. The Company will notify LBCG if there are any material changes,
financial or otherwise, in the condition of any of the involved companies and/or
personnel. At that time, LBCG will make a determination if the changes are
substantial enough to have a material adverse effect on the Offerings. If LBCG
believes the changes are substantial enough to have a material adverse effect on
the Offerings, LBCG has the right to withdraw from all participation in the
Offerings.
6. Instructions regarding the Offerings to the Company from LBCG or its
affiliates will be followed to expedite matters and comply with the conditions
set up by other concerned parties (i.e. lawyers, accountants, underwriters,
etc).
7. Except as provided herein, this Agreement contains the entire
agreement between LBCG and the Company or any of their affiliates with respect
to the subject matter hereof and supersedes any previous agreements or contracts
between them regarding such subject matter.
8. The Company is required to have computer software that is fully
compatible (same programs, same versions, etc.) with LBCG or its affiliates
throughout the entire offering period. This will allow for the expeditious
transfer of documents. The Company must also have an e-mail address that is
available for use.
9. The Company will be required to indemnify LBCG and/or any affiliates
of LBCG for any claims or liability arising from pro forma financial statements
prepared by the Company.
10. All officers and directors of the Company will be required to certify
that all information in any offering circular or registration statement used in
the Offerings is true and correct (to the best of their knowledge) as of its
date.
11. Circumstances may dictate that decisions must be made expeditiously
and all parties must be accessible. As a result all involved parties will be
required to be available to LBCG or its affiliates by cellular telephone.
12. This Agreement shall be governed by the laws of the State of Delaware.
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13. This Agreement is valid for a period of twenty-four months from the
date hereof, unless extended by the written consent of both LBCG and the
Company.
ACCEPTED AND APPROVED:
/s/ Xxxxxx X. Xxxxxxxxxx /s/ Lilly Beter
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xxxxxx-xxxxxxxxxxxx.xxx, inc. Lilly Beter Capital Group, Ltd.
Xxxxxx X. Xxxxxxxxxx Lilly Beter
Chief Executive Officer President
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